Tue February 18, 2014

Long-Term Unemployed End Up Earning Less After They Get A Job

I'm Michel Martin, and this is TELL ME MORE from NPR News. Now we want to take a look at the economy, and we wanted to focus today on people who have been unemployed for a while. There are currently 3.6 million Americans who've been unemployed for more than six months. That's according to the latest numbers from the Bureau of Labor statistics.

And that's an improvement from, say, 2010 when some 6.4 million people were counted as long-term unemployed. But there's a dark cloud to this silver lining. Even if these workers do eventually find work, they will probably earn much less in the long run than people who were unemployed for a shorter period of time. We wanted to talk about this, so we've called, once again, Sudeep Reddy. He is an economics editor for the Wall Street Journal. Sudeep, welcome back. Thanks for joining us.

SUDEEP REDDY: Hi, Michel.

MARTIN: So when we say that long-term unemployed people end up earning less, how much are we talking about?

REDDY: We're talking about a fairly significant difference. People who obviously are continuously employed are doing the best off. Even if you're unemployed for a short period of time - let's say, less than six months - research has found that over the course of decades, your pay might be 10 percent lower than it would have been otherwise. That's significant. If you're long-term unemployed - six months or more - then over - it can take a couple of decades before you even narrow that gap. And even if you narrow the gap a bit, the studies that have been done show that it's as much as a third less as you would be making otherwise if you had been continuously employed.

MARTIN: Now why would that be? I mean, is there a theory about this? Is it people feel like if they've been long-term unemployed, they have less negotiating strength up front so people - employers are inclined to pay them less? You know, why would that be?

REDDY: It's two problems. One is the negotiating ability. If you've been unemployed for six months or more, you're going to be really almost desperate to get a job. And you're going to take whatever you can get, at that point. In some cases, people are taking jobs below their skill set. And so they automatically drop down from where they would have been earning anyway just to make sure they get a job of some kind. And so that's a notch down already. The bigger problem people who are long-term unemployed are finding is that they just can't even get a job at all. Employers are looking at stacks and stacks of resumes these days and applications, and they have a lot of people to choose from. They're less likely to choose from people who have been unemployed for a long time. There have been attempts to deal with this, but not really successful attempts to deal with this problem.

MARTIN: What are some of those attempts? That's what I was going to ask you next. I understand that there are certain administration officials who have started jawboning this issue, you know, as it were, suggesting to employers that they should not discriminate - and I'm putting, you know, air quotes here because I don't know that they're really using the word discriminate - against workers who are long-term unemployed. So talk a little bit about what some of those strategies are, even if they haven't worked...

REDDY: You...

MARTIN: ...Up to this point.

REDDY: You actually heard this from President Obama. In the latest State of the Union address, he announced an initiative to encourage employers to not discriminate - to use that word again - against people who are long-term unemployed. It's really - that is just a voluntary pledge from major employers to say, we're going to judge people based on their credentials and their qualifications. That's - it's unenforceable.

MARTIN: So what's he doing? Is he calling them up and saying - you know, what exactly does that mean?

REDDY: The companies have signed a pledge saying that they would not discriminate because it is in their policies already to judge people based on qualifications. But if you are a hiring manager, if you're somebody who's sitting there trying to judge between a few different applicants, you're probably going to choose somebody who had a job more recently rather than somebody who might've been out of work for a longer time. The reason long-term unemployment matters so much is because skills can be degraded so easily.

If you're out of touch with an office environment, if you're out of touch with your normal skills, then you tend to withdraw a little bit. You tend to be just a step behind other people. That's why it's so important to have skills training while people are unemployed, and that's why it's so important to at least attempt to stay active in whatever your career field is.

MARTIN: The White House says that more than 300 companies have signed pledges to undertake, quote, "best practices for hiring the long-term unemployed," unquote. And the president is also planning, we understand, to sign a presidential memorandum on Friday directing the federal government to follow these rules with its own hiring practices. But what about - are there any strategies, Sudeep, that individuals can employ to try to overcome this, you know, whatever it is - this kind of mindset or barrier or whatever it is?

REDDY: The most important thing is to make sure that you're keeping your skills up to date. And people - I've talked to people who've been unemployed for a year or two because their industry has been hit hard, and so they wait a long time. You spend a lot of time looking for work instead of trying to figure out how to make sure your skills are up to date. And a lot of things can happen in the economy. You can see in any industry, over the course of a year or two, major changes can happen. And that's what employers are looking for to make sure they're going to have a worker who's always staying up to date on these kinds of things.

MARTIN: So, you know, the conventional wisdom has been that if you are unemployed, you need to address job hunting as a full-time job. I mean, does your reporting suggest that that might not be the best strategy, that skills - maintaining skills and other things like that might actually be more to your advantage than continuing to look for work in the same field or something of that sort?

REDDY: If you're going to end up as somebody who is unemployed for a long time, then that's something you really have to take into consideration. What we've found is people who are unemployed for a short period of time - weeks or months - are usually not at a huge disadvantage in something like that because they might take some bit of a pay hit, but they're not going to take some devastating drop in pay as a result of it. And those are the cases where you do OK. If you're out for an even longer period, you kind of have to start reevaluating what you're doing, whether your job search is even going to pursue on the same course. A lot of people go back to school. That's one way to do it, to make sure you get through the spell of unemployment.

The problem here is of course when you're unemployed, you need money. And what we're seeing in the social support system, the government is pulling back - the federal government is pulling back on how much support you're going to get if you're unemployed for a long period of time. The debate we've been having for the last few months about unemployment benefits for people who have been out of work for six months or more, that's all playing a part into this, where eventually if you're stuck in this kind of situation, you force yourself to just make a decision and get a job - any job you can get.

MARTIN: Just briefly, let me just mention that the president has already signed that memorandum that he suggested - that you mentioned - that he first talked about in the State of the Union. And he's obviously gone ahead and signed that. So finally, you've done a deep dive into this back in 2011. Has anything changed that you want to tell us about?

REDDY: Unfortunately, not much has changed for the people who are still stuck out there. You have more people who have gone on to disability benefits. You have more people who ultimately decided that they are going to take a lower-paying job. And this has consequences all the way down the ladder. If you're a higher-skilled worker and you take a lower-paying job, you're displacing somebody who might have lower skills, and they can't find a job as a result. And these are conditions that can, as we said, play out for decades. And that's the real long-term trauma of an unemployment spell like we've had.

MARTIN: And it also ends up in your retirement account later on, you know.

REDDY: Indeed.

MARTIN: That was Wall Street Journal economics editor Sudeep Reddy with us once again in Washington. Thanks so much for joining us once again.